MARKET WATCH: Economic indicators raise oil prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 21 -- Crude and natural gas prices continued to climb Apr. 20 in the New York market, with other energy commodities recouping some of their previous losses following strong earnings reports from the technology sector and better-than-expected US home sales.

“The brighter outlook for the economy and an unexpected decline in crude inventories helped send crude prices up 3%, with dollar weakness providing further support. Natural gas rose more than 1% on bullish weather forecasts,” said analysts in the Houston office of Raymond James & Associates Inc. “The broader [equity] market rose 1.5% yesterday, closing at its highest level since June 2008.” Energy stocks also performed well, they said, and oil and gas prices were still climbing in early trading Apr. 21.

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, reported, “Oil markets continued to take direction from the weak dollar and buoyant equity markets. Renewed confidence in the global economy has once again brought the threat of rising oil demand into focus.”

The stalemate between the rebels and Moammar Gadhafi’s forces in Libya is contributing to uncertainty over the stability of the Middle East and North Africa. “Italy, France, and the UK are sending military advisors and trainers to assist the embattled rebel forces. France has also called for intensified airstrikes on Gadhafi forces,” Ground said. Unrest in Nigeria after its recent presidential election may have contributed to supply concerns. However, Ground said, “The unrest was short-lived and concentrated in the north of the country (oil production is centered in the south).”

‘Game changer’
More important, Saudi Arabia’s recent decision to reduce its crude production is “a game changer,” warned Olivier Jakob at Petromatrix in Zug, Switzerland. “We now have a situation where global stock draws implied by [the Energy Information Agency's recent report of] world supply and demand for crude being confirmed on a micro level, and if the flat price of oil is already at elevated levels, those stock draws could translate in a tightening of the time structure. A tightening of the crude time spreads in West Texas Intermediate should also result in a reduction of the Brent premium to WTI.”

Saudi Arabia’s production cut “implies a stock draw…of 1 million b/d in the second quarter,” Jakob said. “For April to date, the US has been reducing its stock layers at a rhythm of 800,000 b/d.”

In April of 2009 and 2010, he said, “The US was building stocks. This means that stocks are starting to trend into a deficit to the levels of the last 2 years and are trending towards the 2007 levels. In early February, US total petroleum stocks were 30 million bbl above the 2010 levels; they are now 29 million bbl below.”

Jakob pointed out, “It is not that demand is very strong but that supplies are very low. US refineries have been running at low operating rates, and this has reduced the stock levels of refined products. The product balances should improve once the refineries return from their scheduled and unscheduled maintenance. But given that crude oil stocks have not risen and that the Organization of Petroleum Exporting Countries is cutting production, the layers of crude oil stocks should diminish once they improve on products.”

In other news, BP PLC commemorated the first anniversary of the Macondo blowout in the Gulf of Mexico by suing all of the other primary producing and servicing companies connected with that well. Apr. 20 also was the deadline for parties associated with that blowout and spill to file claims against each other.

BP filed suit for $42 billion—the estimated cost of the resulting spill—against Transocean Ltd., whose Deepwater Horizon semisubmersible rig sank in that disaster; and Halliburton Co. that was involved in cementing the well at the time of the blowout. That’s despite usual provisions in service company contracts that indemnify service firms from such losses. BP also sued Cameron International Corp., manufacturer of the blowout preventer blamed for the disaster, as well as Mitsui & Co. and Anadarko Petroleum Corp., BP’s two partners in the well.

“Cameron, Anadarko, Halliburton, and Mitsui have also filed claims to protect their interests,” said Raymond James analysts. “Buckle up for a long and tenuous legal process.”

US inventories
The Energy Information Administration reported Apr. 21, the injection of 47 bcf of natural gas into US underground storage in the week ended Apr. 15. That was below the Wall Street consensus for 52 bcf input but raised working gas in storage above 1.65 tcf. Those stocks are 165 bcf less than a year-ago in the same period but 23 bcf above the 5-year average.

EIA earlier said commercial benchmark US crude inventories fell 2.3 million bbl to 357 million bbl in the week ended Apr. 15. That was counter to a Wall Street consensus for a 1.3 million bbl increase. Gasoline stocks dropped 1.6 million bbl to 208.1 million bbl, slightly less than the market consensus for a 1.8 million bbl decline. Both finished gasoline and blending components were down. Distillate fuel inventories decreased 2.5 million bbl to 148.3 million bbl in the same period while analysts were expecting a small increase of 200,000 bbl (OGJ Online, Apr. 20, 2011).

Energy prices
The new front-month June contract for benchmark US sweet, light crudes climbed by $3.17 to $111.45/bbl Apr. 20 on the New York Mercantile Exchange. The July contract gained $3.18 to $111.91/bbl. On the US spot market, WTI at Cushing, Okla., increased $2.74 to $110.89/bbl as it tried to align with the new near contract.

Heating oil for May delivery popped up 6.29¢ to $3.22/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 4.42¢ to $3.28/gal.

The May contract for natural gas was up 4.8¢ to $4.31/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated by 12.5¢ to $4.34/MMbtu.

In London, the June IPE contract for North Sea Brent advanced $2.52 to $123.85/bbl. Gas oil for May jumped by $20.25 to $1,020.50/tonne.

The average price for OPEC’s basket of 12 benchmark crudes increased $1.97 to $117.97/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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